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Buying Your First Stock: Everything You Need to Know

Published June 15, 2021

7 minute read

David Ning

By David Ning

Many people know that investing is an important part of successful finances for the long term. After all, with savings yields as low as they are, it’s very difficult to get to the point where you can save enough to then live off just the interests your nest egg throws off. That’s why investing in stocks can be a way to boost your potential returns over the course of two or three decades. Do you want to start investing? If you’re ready to dive in — whether you’re interested in mutual funds or individual stocks — here are some tips you want to know to begin buying your first stock.

Getting Started

Investing makes sense, especially when you consider that the stock market has never lost value in the long run. Yes, there might be years when there are losses. There might even be a decade here and there when returns were scanty. However, over a period of 30 years, the stock market has yet to lose. While there’s a first time for everything, the reality is that the market as a whole is likely to come out ahead. This means that if you invest money now, you can benefit in the future.

So how do you get started? While investing might seem dauting, it’s actually fairly simple once you know the basics. By the end of this article, you should feel confident enough to tip your toes into the stock market for the first time.

Find the Right Broker for You

I suggest you go ahead and try them all out, before you decide to settle on the one you like best. Beware of the minimum balances or trade amounts, though. It doesn’t matter whether you go “old school” and deal with a human broker over the phone or embrace the future by signing up for an online broker. They will ultimately do the same thing, although they come with some differing features.

There are even a number of online discount brokers that off the chance to trade for free. Even better, they probably only require you to start with a very small amount of money. That means almost anyone can get started with investing, even with just $50.

Shop Around On Fees

Speaking of fees, you might as well shop around. As we said, some stock trading apps (or web-based platforms) offer commission-free trading. Instead, they use the data they collect from their users to make their own investing decisions (or they sell it). Others charge a small percentage of every trade, or a base rate. As you get into larger investment amounts, the fees can become higher. So it pays to shop around for a broker that doesn’t cost an arm and a leg.

Make sure the broker offers what you want to buy. There are brokers that charge as much as $75 for mutual fund transactions. That’s not even the worst part, since some brokers can’t even buy the specific mutual fund that you want. On the other hand, some brokers also have particular mutual funds and ETFs that they offer at no transaction cost. If you’re interested in funds, you will need to look at what your broker of choice allows.

Look for Incentives That Could Tip the Scale

First of all, some brokers offer sign up bonuses. That’s because they want you as a customer. You won’t get much bonus money if you only invest a few bucks. However, it usually isn’t that hard to earn $100 extra. Some brokers will even give you up to $3,500 to open an account with assets, assuming you’re bringing a fairly large portfolio.

These offers change all the time. It really doesn’t matter whether you’re looking to invest $100 or $100,000. There’s enough competition out there that one company or another wants to buy your business. Wouldn’t you say it’s worth your time to look up some potential free money?

Check Out Their Research Tools

Different brokers offer different research tools. But the bigger question is, will you use them? Many online discount brokers offer a variety of research tools. You can find information about the latest investments or news that might influence how these investments are traded.

Some brokers offer access to stock and fund screeners that can help you find new ideas for investments. These are really helpful, but only for those who actually take the time to learn how to navigate them. There are plenty of free tools out there too. You may find that you actually like the free tools. That’s why you have to not just research on the stocks themselves but also the brokers.

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Don’t Forget the Little Things

Check the account fees while you are researching the brokers. There are still some brokers that charge monthly maintenance fees. This means that you’ll pay a fee every month — just for having an account. Sometimes these fees are lowered (or waived) if you invest a certain amount — say, $50,000.

These fees are sometimes on top of any transaction or trading fees you are charged every time you buy or sell a stock. You might also see fees for online assistance or not meeting minimum balance requirements. Before you get too deep, you need to understand how to use the various brokers, what they charge fees, and how their policies apply to you.

Exit Fees

More fees? Yep, that’s right. There’s also a thing called an “exit fee.” Nowadays, you can easily move funds from broker to broker without selling your holdings and incurring capital gains taxes. This is done through the Automated Customer Account Transfer Service (ACATS). Everything is done through the broker and the process works really well. It even transfers your cost basis information to the new broker.

However, many brokers will charge you a fee to leave. If you are just trying out different brokers in the beginning, make sure you understand how much it’s going to cost you to switch brokers. You don’t want to pay an arm and a leg if you decide that you rather use someone else after your test period.

Customer Service is Important (Even If You Don’t Like Calling)

Customer service matters too. Call the hotline a few times to see how long the wait is. Gauge how professional and knowledgeable the customer service reps are. Many brokers offer live text chat, so test that out too. Some brokers even have email systems that they actually respond to (as opposed to an automated reply). You never know when you’ll need someone live to handle your issue. Don’t leave any stone unturned.

In some cases, it might make sense to go with a broker who’s not offering any cash incentives, as long they give you access to other perks and tools that are more important to you. Remember, cash bonuses are a onetime perk. But you’re in this for the long haul. Weigh which items are likely to be priorities for you. Then choose your online broker accordingly.

What You Buy Matters

Consider starting with a low-cost index fund or ETF, even if you are dead set on buying individual stocks. One of the pitfalls that many beginning investors run into is the belief that they need to pick winning stocks. You’re better off, though, to invest in a low-cost index fund or ETF.

An all-market fund is great for beginners, since it basically means that you mirror the market. Over time, this virtually guarantees that you come out ahead. Individual stocks have the potential to be long-term losers. Additionally, the volatility in individual equities can be especially difficult to deal with. An index fund or ETF helps smooth the bumps.

As you learn more about investing, you can commit more money. You can start picking and choosing other funds and individual equities that you think will perform well. However, it still makes sense to keep things simple at first.

Don’t Forget That Buying Stock is About Building Wealth

Make sure you actually follow through with opening a brokerage account. Taking this first step is important. Plenty of people have good intentions, insisting they’re going to start investing “any day now.” But those good intentions won’t do you any good good unless you put them into action. Go ahead and open a free account, even if you’re not quite ready to buy anything yet.

Next, determine how much money you can invest each month. The key to building a good nest egg is dollar cost averaging. This means that you put the same amount of money into your account every month, using it to buy as many shares (and partial shares) as possible. Decide how much you can afford to invest and set up a plan to make it happen. Set up the contributions on autopilot, if you can. This can be done either by having a portion of your paycheck diverted at the source (works well for company retirement plans), or through automatic transfers from your checking account.

Don’t forget to increase your regular monthly investment when you get a raise. Every time you earn more money, you should make sure that you are investing a portion of it. That will keep your nest egg keeps growing.

Day Trading?

If you clicked into this article thinking you were going to get advice about buying GameStop, AMC, Bitcoin, or DogeCoin, you’re in the wrong place. These wildly volatile stocks and cryptocurrencies aren’t exactly what we’re talking about when we say “building wealth.” Yes, it’s possible to get lucky and buy a stock recommended on Reddit and see your investment double, triple, or more in a short period of time. However, you need to know that this is not the norm.

Taking these risks on single stocks that go up and down like a roller coaster isn’t that different than walking into a casino and pumping $1,000 into a slot machine. You certainly could hit the jackpot. You could also lose it all. If you want to get involved in high volume trading, you need to understand that you’re no longer playing the long game. It’s much riskier.

The Bottom Line

Buying your first stock is exciting. It could be the start of your road to become more financially independent. I bought my first stock decades ago and I never looked back. However, I blindly jumped in. Now, I wish I had spent more time figuring out which broker was right for me and which investments was better long term. I’m sure it cost me a bit of money at first.

So don’t be like me. Do your research. Find the right broker. Then keep buying into the market and look for long term returns. You will thank yourself for making this important decision decades from now.

Buying your first stock

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David Ning

Experienced Finance Writer

David is a published author, entrepreneur and a proud dad. He firmly believes that anyone can build a solid financial foundation as long as they are willing to learn. He runs MoneyNing.com, where he discusses every day money issues to encourage the masses to think about their finances more often.

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